Wednesday, June 13, 2007

Israel’s Public Venture Market

Israeli biotech is bursting with ideas—or so IN VIVO Blog discovered at the country’s annual biotech fest in Tel Aviv, ILSI Biomed Israel 2007.

But virtually none of them are financeable along the usual venture-capital path. There are only a few Israeli VCs with any significant capital, and they prefer the faster, surer returns from device investing. Meanwhile, US and European VCs prefer to work closer to home (for more, see this START-UP article).

And thus Israeli entrepreneurs are tapping what their richer confrères in the US could never do: public investors.

Since the deregulation a few years ago of the investment rules for Israeli pension funds, investment managers have been willing to put money into higher-risk, higher return companies. Which is how 10 Israeli biopharmas have gone public since August 2005, raising a total of $149 million. So far, none of these companies has crashed, though only one, Kamada (it produces specialty injectables and immunoglobulins), has seen any dramatic updraft, its stock price tripling since its 2005 IPO.

Not that Israeli investors are particularly daring. At least half of the Israeli IPOs are themselves highly diversified biotech investment vehicles. Three are biotech investment groups: Clal Biotechnologies, Bio Light, and Capital Point. Two others have gang together a variety of therapeutically unrelated projects: BioLineRx has in-licensed some 14 programs from Israeli academic groups and companies, and Hadasit Bioholding is a collection of nine programs from Hebrew University Hospital.

Nor do Israeli investors put much money at risk. Only two IPOs have approached US values: BioLineRx, raised $50 million; Clal raised $43 million. Most of the others have raised between $3-10 million.

In short, the Tel Aviv biotech boom doesn’t much resemble Germany’s Neuer Markt, which blossomed with the German biotech boom of the late 1990s and utterly collapsed in 2001, disappearing altogether in 2003. Since Israeli offerings are small, the market should be able to absorb the inevitable failures. And as such the failures won’t be crushing defeats—but learning experiences. They’ll “create people who will know how to run biotechs,” says BioLineRx’s CEO Morris Laster. “They’ll learn from their mistakes. And that’s how you develop an industry.”

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